Gates Foundation Demonstrates The Wrong Way to Build A Blockchain

Mercator designed a Strategic Framework for Evaluating Blockchain solutions (bit.ly/blockchainframework) and this effort by the Bill & Melinda Gates Foundation, while well intentioned, is doomed to failure because it lacks a well-defined use case which is required to guide the construction of blockchain technology in regulated markets (see slide 9 of the Framework deck):

“Level One Project leader Kosta Peric thinks blockchain technology can fulfill some of the conditions that his team thinks are essential for a digital payment platform for the poor. He outlined these requirements Tuesday at the Business of Blockchain conference organized by MIT Technology Review and the MIT Media Lab. They included support for multiple service providers, third-party applications, the host country’s national currency, and government regulations; ability to transfer funds immediately and scale up to serve millions of people; and integrated fraud and security protections.

Though blockchain is a good fit for some of the system prerequisites, Peric thinks the technology will struggle to process transactions in real time and have trouble scaling up. And because most blockchain networks are global, he worries that national governments and central banks won’t be able to regulate them easily.

That matters because the Gates Foundation only wants to foster the creation of these systems, not operate or manage them. “These platforms must be regulated so they will be accepted by governments and banks … and can be monitored to prevent things like money laundering and terrorism financing,” Peric said at the conference. “Most of the new service providers [on these platforms] won’t be banks, so they won’t be familiar with what it takes to do fraud management.”

Peric believes a modified version of blockchain could meet the Level One Project requirements. His team is collaborating with companies in Africa and South Asia to figure out which blockchain-derived technologies would be the best fit. His preference is to utilize technologies that would set standards for how a Level One-type system would work rather than dictate its exact implementation.”

Every country will have its own AML, privacy, and regulatory needs and the likelihood that a blockchain will meet all of those diverse needs without being constructed specifically to meet the detailed use case is nil.